Turmoil grows

Jobless Claims 16-year High, Auto Bailout No Deal, Dow Down 445

struggling economy

November 21, 2008|By From Sun news services

WASHINGTON - Jarred by new jobless alarms, Congress raced to approve legislation yesterday to keep unemployment checks flowing through the December holidays and into the new year for 1 million or more laid-off Americans whose benefits are running out.

The economic picture was only getting worse, if Wall Street was any indication. The Dow Jones industrials dropped more than 400 points for a second straight day, reaching the lowest level in more than five years, and the Standard & Poor's 500 index fell below lows established six years ago as it lost almost 7 percent.

And the $25 billion rescue plan for the auto industry, desperately sought by Detroit's beleaguered Big Three, collapsed yesterday as Congress drew the line at one more bailout and Democrats said they would not even consider it until the companies produce a convincing plan for rebuilding their once-mighty industry.

The Senate's voice vote on extending unemployment benefits followed yesterday's government report that laid-off workers' new claims for jobless aid had reached a 16-year high and the number of Americans searching for work had surged past 10 million.

The White House, which had opposed broader legislation containing the benefits extension, urged passage of the new version and said President George W. Bush would quickly sign it.

As Congress prepared to leave town - perhaps for the year - there was no such resolution on helping the auto industry, a disaster in the making that could lead to hundreds of thousands if not millions more lost jobs.

The demise of the rescue - at least for now - left uncertain the fate of General Motors Corp., Ford Motor Co. and Chrysler LLC. The carmakers have been clobbered by lackluster sales and choked credit, and are battling to stay afloat through year's end.

Democratic leaders said they could return to Washington in mid-December to vote on rescue loans if the carmakers first present a plan on transforming and modernizing operations.

Discouraged by the stalemate over auto aid, investors sent the Dow Jones industrials down 445 points, or 5.6 percent. The decline brought the Dow's two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.

"The market was looking to see [the auto deal] resolved," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "The fact that it won't be addressed until Dec. 8 isn't helping, given the fact that economic conditions are so poor here.

As for the jobless benefits, about 1.2 million people would exhaust their unemployment insurance by the end of the year without the extension, sponsors said. The measure is estimated to cost about $5.7 billion, although economists put the positive impact at $1.64 for every dollar spent on jobless benefits because the money helps sustain other jobs and restores consumer confidence.

The House approved the bill last month.

The nation's unemployment rate hit a 14-year high of 6.5 percent last month.

Yesterday's Labor Department report said claims for unemployment benefits jumped last week to 542,000 - the highest level since July 1992 and fresh evidence of a rapidly weakening job market that is expected to get even worse next year.

Even already battered industries such as construction and manufacturing are expected to see more job cuts, many economists warn. Layoffs also are likely to spread to relatively unscathed areas such as retail, transportation and hotels and restaurants.

"I don't think any of these sectors have reached the bottom," said Carl Riccadonna, senior U.S. economist at Deutsche Bank.

The unemployment legislation as approved would provide seven additional weeks of payments to people who have exhausted their benefits or will exhaust them soon. Those in states where the unemployment rate is above 6 percent would be entitled to an additional 13 weeks above the 26 weeks of regular benefits. (Maryland's unemployment rate was 4.6 percent in September, the most recent figures available.) Benefit checks average about $300 a week nationwide.

The Senate vote yesterday could wrap up this session of Congress - with the possibility of the December return. The Democratic leaders' main condition for that special session was that the Big Three automakers first present a plan showing how federal aid would help them modernize.

"Until we can see a plan where the auto industry is held accountable," said House Speaker Nancy Pelosi, "we cannot show them the money."

"We are prepared to come back into session the week of Dec. 8 to help the auto industry," said Senate Majority Leader Harry Reid. "But only if they present a responsible plan that gives us a realistic chance to get the needed votes."